Pricing Strategies: Price vs. Value

If you want to grow your plumbing or HVAC business (and I’m certain you do), here’s a critical question you need to address:

What is your potential customer’s number-one fear?

When it comes to their plumbing or air conditioners, homeowners have a lot of concerns. But what they’re really afraid of is getting ripped off. Few customers will come right out and say that, but you can hear it in their voice, can’t you? In fact, you can almost see them bracing for impact when they ask, “What’s this going to cost me?” The fear of being taken advantage of makes some customers seem defensive—maybe even rude.

On the flip side, we suspect your number-one fear is losing business. Those two fears combined make conversations about pricing particularly difficult. You know you have to be competitive to address your customers’ fear of being ripped off. But you can’t just give away your services, or you’ll soon be unemployed.

So how do truly successful HVAC and plumbing shops make pricing decisions? They factor in the value of the services they offer, and they craft their pricing structure—and marketing messages—with that in mind.

There’s a difference between the price of a product or service and the value of that product or service.

As consumers, we’re willing to spend more money on a product or service we perceive to be more valuable. In fact, we’re willing to pay more for the same exact product in some contexts compared to others. We’ll pay $2 for a beer in an air-conditioned bar and $8 for the exact same beer on a 98-degree day at the ballpark. We’ll spend $10 for a tub of popcorn at the theater, when that same $10 could buy three metric tons of the stuff at the grocery store.

The same logic applies to plumbing or HVAC services. Fixing a leak in someone’s basement may cost you just a few dollars for parts and fuel for your service truck. But to a homeowner who’s narrowly escaped a plumbing disaster, your services are far more valuable than just a few bucks. And if all of that happens at 3 am and with a cheerful disposition from your technician, you’ve upped the value-add.

You could charge customers for the cost of your materials and labor plus whatever you need to turn a profit. That’s called “cost-plus” pricing, and it’s a very common approach. In fact, many contractors structure their fees that way.

Or, you could charge customers the amount you think they’ll pay for your services, based on the benefits they’ll receive by choosing you. Being competitive doesn’t require you to be the least expensive, and you might be worth more than you’re charging.

Obviously, you can’t just take a wild guess at your rates and see how it goes. Research what your competitors charge. Evaluate your business goals for the year and factor in the related costs (e.g., more salaries) and potential revenue (e.g., 10% increase in service calls). Consider political or economic conditions that may impact your business.

I realize you’ve likely done this. I hope you have, anyway. But how long has it been since you’ve revisited and reevaluated your pricing structure? If it’s been some time, it’s likely you could make adjustments to benefit your business and your customers.

After you have a clear (and current!) picture of the cost of doing business, start making a list of the other benefits you bring to your customers:

• Do you offer unparalleled, over-and-beyond customer service?
  
• If yes, do you have a significant number of online reviews to back up that claim?
  
• Do you use higher-quality parts and supplies than your competitors do?
  
• Do you offer discounts to repeat customers?
  

In addition to the value-adds already mentioned, there’s one that deserves special attention: transparency .

Let’s go back to our nervous—and possibly cranky—potential customer who’s worried you’re going to rip them off. They have no idea how you set your rates and if they’re fair and reasonable. All they know is they’re standing in three inches of water and the home services industry has a bad reputation for overcharging for shoddy work.

Since that’s not how you run your business, your first task is to help your potential customers see how you’re different:

• Point out the elephant in the room. Let the homeowner know that you empathize with their situation, you know plumbers have a poor reputation for taking advantage of people, and you pride yourself in treating customers better than that.
  
• Offer up-front pricing. Customers don’t appreciate expensive surprises and most people don’t like to haggle. Consider going the route many car dealerships have headed and offer hassle-free pricing. If you’re thinking, “How does that even work?” start with our step-by-step guide to flat-rate pricing.
  

Implementing a value-based fee structure will inevitably mean you’re not the least-expensive shop in town. But you shouldn’t be; your services are more valuable than that shop’s services, right?

Your fees—and profits—should reflect that.

At Levergy, we love having conversations about business value and how to communicate that so your business will grow.
Get started with a free consultation.